Basic Concepts in Economics

1) Production: Any economic activity directed towards the

satisfaction of human wants is known as production. The

production of goods and services is necessary for the existence of

an economy. The level of production in any economy is the best

measure of its performance, living standards of its people and

the extent of technological development and growth. It includes

both the manufacturing of material goods as well as the

provision of services. The production of electrical and electronic

goods, automobiles etc and the work of teachers, doctors,

lawyers etc are all production in the economic sense.

2) Consumption: The act of satisfying one’s wants is called

consumption. Goods and services are produced only because

human wants need to be satisfied. No one will produce if there is

no consumption. The quality and quantity of consumption reflects

the levels of income and employment in an economy.

3) Investment: Investment is the addition made to the existing

total stock of capital. The amount to make investment is coming

from saving and this saving is the unspent income. Income comes

from employment. An economy can grow only if it saves

something from its present consumption and invests it again in

the production process. It adds to the productive capacity of an

economy.

4) Goods: Anything that can satisfy human wants is called goods

in economics. While services also satisfy human wants, the

difference is that goods are tangible and visible but services are

intangible and invisible. Goods can be of various types. They can

be free goods or economic goods, transferable, private or public

and so on.

Utility: The want satisfying capacity of a commodity is called its

utility or the power of a commodity to satisfy human wants is

called utility. Utility is subjective that is it does not lie in the

good but is a function of the consumer’s mind. Utility of good

changes with the change in conditions and circumstances. There

are three main forms of utility-form utility, place utility and time

utility.

Value: The commodity which has utility and possesses the

condition of scarcity and transferability, then it has value. For

example air has utility but it is abundant and a free resource, it

has no value in economic sense. Likewise rotten eggs are scarce

and transferable but possess no utility, they also don’t have

value. A television since it possesses utility and is scarce as well

as transferable has value.

Price: Value of a commodity expressed in terms of money is

called price. In modern times, goods are exchanged for money;

the value of a commodity is its price.

Wealth: Anything that has value is called wealth. In economics;

wealth does not only refer to money, but to all goods that have

value. Wealth includes material wealth and human wealth

(education, health, knowledge etc)

Income: The amount of money which wealth yields is known as

income. Thus, wealth is a stock concept while income is a flow

concept. That is wealth is valued at a particular point of time and

income is measured over a period of time particularly a year.

Gross Domestic Product (GDP)

When we take the sum total of values of output of goods and

services in the country, without adding net factor incomes

received from abroad, the figure so obtained is called Gross

Domestic Product (GDP).

GDP = C+I+G

GNP may be defined as the aggregate market value of all final

goods and services produced during a given year. The concept of

final goods and services stands for finished goods and services,

ready for consumption of households and firms, and exclude raw

materials, semi-finished goods and such other intermediary

products. More clearly, all sales to households, business

investment expenditure, and all government expenditures are

obviously regarded as final goods. In an open economy (an

economy which has economic relationship with the rest of the

world in the form of trade, remittances, investment etc-all

economies are open economies), GNP may be obtained by adding

up:

1) The value of all consumption goods which are currently

produced

2) The value of all capital goods produced which is defined as

Gross Investment. Gross Investment, in the real sense, here

implies the increase in inventories plus gross products of

buildings and equipments. It, thus, includes the provision

for the consumption of capital assets, i.e., depreciation or

replacement allowances.

3) The value of government services which are measured in

terms of governmental expenditure on various goods and

services for rendering certain services to the benefit of the

entire community.

4) The value of net exports, viz, the difference between total

exports and total imports of the nation. This value may be

positive or negative.

5) The net amount earned abroad. This represents the

difference between the income received by the nationals

from abroad minus the income remitted by the foreigners

working in India.

GNP at market price, thus, represents:

GNP= C+I+G+(X-M)+(R-P),

Where,

C stands for consumption goods,

I stands for capital goods/ or gross investment,

G stands for government services,

X stands for exports,

M stands for imports,

R stands for income receipts from abroad, and

P stands for income remitted by foreigners.

The Sectors of the Economy

The economic activities of an economy is classified mainly into

three primary sector economic activities (agriculture and allied),

secondary sector (manufacturing, construction etc) and service

sector or tertiary sector activities (transport and communication

etc).The Ministry of Statistics and Programme Implementation

(MOSP), Government of India has been publishing National

Accounts Statistics annually classifying the Indian economy into

three sectors and re-classifying the sectors into various sub

sectors. In this classification primary sector includes

agriculture, forestry and logging and fishing. The secondary

sector includes manufacturing (registered and un-registered

manufacturing), construction, electricity, gas and water supply.

Tertiary sector or service sector includes transport, storage and

communication, railway, trade, hotels and restaurants, banking

and insurance, real estate, ownership of dwellings and business

services, public administration and other services. In Indian

economy the contribution of primary sector is less than 20 per

cent and the agriculture share in national GDP is reducing even

though 58 per cent of India’s labour force still engaged in

agriculture and allied activities. This is a serious issue in the

rural life of India. The agrarian sector has been facing serious

crisis and to a greater extent it is structural and institutional.

The area under irrigation has been almost constant for the last

several years, declining capital expenditure by the public sector

in agriculture, lack of infrastructural facilities, declining

institutional credit to agriculture etc all these are burning issues

of India’s farm sector. Sharp decline of agriculture in value-

added terms to GDP, increasing amenities in urban India and not

much in rural India where more than 70 per cent of the

population lives etc are some disturbing facts to those who hold

‘Indian Economic Miracle’ theory. We have good demographic

advantage, vast agricultural land and in this land we can

cultivate all most all crops sufficiently to meet the requirements

of our growing population. But now the present situations of

India like poor state of our education, public health, agriculture

and rural economy, poor amenities in rural areas and urban

slums, poor public delivery systems, high poverty ratio, still high

illiteracy rate, malnutrition and high infant mortality rate are

burning issues to be addressed urgently.

At the national level the contribution of manufacturing sector is

around 18 per cent and it is almost constant for the last so many

years. But in Kerala it is around 10 per cent and in Kerala we

have a stagnant manufacturing sector. The contribution of

service sector to the national economy is nearly 60 per cent.

There are serious disparities in the growth rates of agriculture,

manufacturing and service sectors of the Indian economy.

Functions of Money

The functions of money can be classified as follows.

1) Money as a medium of exchange

The basic function of money in an economy is to act as a medium

of exchange. Money has general acceptability and purchasing

power so it can act as a medium of exchange. When money is

transacted, purchasing power is transacted from one person to

another. In earlier periods we had been following barter system.

Barter system means exchanging goods for goods. But most of

the time, for such exchange to take place, there must occur a

double coincidence of wants. That is each party to the exchange

must have precisely what the other party requires, and in an

appropriate quantity and at the time required. The use of money

as a common medium of exchange has facilitated exchange

greatly.

2)Money as a Unit of Account.

Money customarily serves as a common unit of account or

measure of value in terms of which the values of all goods and

services are expressed. This makes possible meaninigful

accounting systems by adding up the values of a wide variety of

goods and services whose physical quantities are measured in

different units

3) Money as a Standard of Differed Payment

Money also serves as a standard or unit in terms of which

deferred or future payments are stated. This applies to payments

of interest, rents, salaries; pensions etc.Large fluctuations in the

value of money (inflation or deflation) make money not only a

poor measure of value, but also a poor standard of deferred

payment. This is because the value of money is not something

intrinsic to it, but a social phenomenon. This makes monetary

management for the stable value of money socially very

important.

3)Money as a Store of Value

Money also serves as a store of value i.e., members of the public

can hold their wealth in the form of money. This function is

derived from the use of money as a medium of exchange in a two-

fold manner. First, the use of money as a medium of exchange

decomposes a single barter transaction into two separate

transactions of purchase and sale.

Significance of Money in Modern Economic Life

Money occupies a central position in our modern economy.

Money is everywhere and for everything in the modern economic

life. Money has become the religion of the day in the ordinary

business of life. Every branch of economic activity in a money

economy is basically different from what it would have been in a

barter economy. Money has created a far reaching effect on all

facets of economic activities; consumption, production, exchange

and distribution, as also on public finance and economic welfare.

Money and Consumption

Money enables a consumer to generalize his purchasing power.

It gives him command over a wide variety of goods. It enables

him to canalize his purchasing power and get what he wants. In

fact, it is money through its immense purchasing power that

makes a consumer sovereign in a capitalist economy. The

consumer’s sovereignty can be expressed through money

spending. Money provides freedom of choice of consumption.

Money and the price mechanism help a consumer to allocate his

income over goods in such a way so that he derives maximum

satisfaction from his consumption.

Money and Production

The introduction of money has made present day mass

production possible. Without money, production on a large scale

would be impossible. The benefits of money in production are as

follows

1) Money has made extreme division of labour possible.

Intensive specialization is necessary for large scale

production.

2) Money is the very essential for modern enterprise.

Entrepreneurs are concerned, while planning their

production activities, with the cost of production and selling

prices together with the resulting profit, all calculated in

terms of money.

3) The use of money enables a producer to concentrate on the

organization of the production process. Money provides a

basis for supporting more complex methods of organizing

production.

4) Money has facilitated borrowing and lending and these are

essential in present day production. Credit is the main pillar

of modern business.

5) Money is the most liquid and general form of capital which

is highly mobile between different regions and industries.

6) Money helps the producer to discover through the price

mechanism what buyers want and how much they want, so

that he can produce and supply accordingly. In fact, money

has changed the basic characteristics of production.

Money and Exchange.

Money overcomes the difficulties of a barter system of exchange.

In a money economy; it is simple matter to ascertain the market

price in terms of monetary units. Money facilitates trade by

serving as a medium of exchange. Thus, rapid exchange in a

modern economic system is possible because of money. Money is

the basis of the pricing mechanism through which economic

activities are adjusted.

Money and Distribution.

Money eases the process of distribution of factors rewards like

wages, interests and profits which are all measured and

distributed in terms of money. It is with the help of money that

the shares of different factors of production are properly

adjusted. Accounting, receiving and storing of its share of income

by any factor-unit in kind is most inconvenient. Here money

comes to the rescue.

Money and Public Finance

In a modern economy, government plays a very important role.

Government receives income in the form of taxes, fees, prices of

public utility services, etc and uses this income for

administrative and developmental purposes. But the great

magnitude of public revenues and public expenditure in a

modern state would become impossible without money. Further,

fiscal devices like public borrowing and deficit financing for

economic development can be adopted only in a monetary

economy.

In recent times, the fiscal policy of a government acquired very

great importance in economic life, since economic activities can

be regulated through budgetary operations that are facilitated by

the institutions of money.

Money, thus, plays an important role in the shaping of the

economic life of a country. The growth of money economy has

made the growth of economic liberalism and, hence, of the

present day free enterprise or capitalists system possible. In fact

the pattern of economic life has changed in accordance with the

changes in the economic progress. For better performance of an

economy, a country’s monetary system should be operated in

such a manner as to maintain high levels of employment and

avoidance of business fluctuations.

Inflation

Inflation is commonly understood as a situation of substantial

and rapid general increase in the price level and consequent fall

the value of money over a period of time. Inflation means

persistent rise in the general level of prices. Inflation is a long

term operating dynamic process. By and large, inflation is also a

monetary phenomenon. It is usually characterized by an overflow

of money and credit. In fact, the root cause of inflation is the

expansion of money supply beyond the normal absorbing

capacity of the economy.The behaviour of general prices is

measured through price indices.The trend of price indices

reveals the course of inflation or deflation in the economy.

Crowther defines inflation as “a state in which the value of

money is falling,ie., prices are rising”. Professor Samuelson

defines “Inflation occurs when the general level of prices and

costs is rising”.

INFLATION

Inflation is commonly understood as a situation of substantial

and rapid general increase in the price level and consequent fall

the value of money over a period of time. Inflation means

persistent rise in the general level of prices. Inflation is a long

term operating dynamic process. By and large, inflation is also a

monetary phenomenon. It is usually characterized by an overflow

of money and credit. In fact, the root cause of inflation is the

expansion of money supply beyond the normal absorbing

capacity of the economy.The behaviour of general prices is

measured through price indices.The trend of price indices

reveals the course of inflation or deflation in the economy.

Crowther defines inflation as “a state in which the value of

money is falling,ie., prices are rising”. Professor Samuelson

defines “Inflation occurs when the general level of prices and

costs is rising”.

Types of Inflation.

On different grounds, economists have classified inflation into

various types.According to the rate inflation there are four types

of inflation.

1) Moderate Inflation

2) Running Inflation

3) Galloping Inflation

4) Hyper Inflation

Moderate inflation is a mild and tolerable form of inflation. It

occurs when prices are rising slowly. When the rate of inflation is

less than 10 per cent annually, or it is a single digit annual

inflation rate, it is considered to be moderate inflation in the

present day economy. It does not disrupt the economic balance.

It is regarded as stable inflation in which the relative prices do

not get far out of line.

When the movement of price accelerates rapidly, running

inflation emerges. Running inflation may record more than 100

per cent rise in prices over a decade. Thus, when prices rise by

more than 10 per cent a year, running inflation occurs. When

prices are rising at double or triple digit rates of 20,100 or 200

per cent a year, the situation may be described as galloping

inflation. Galloping inflation is really a serious problem. It causes

economic distortions and disturbances.

In the case of hyper inflation prices rise is very severe. It is over

1000 per cent per year.There is at least a 50 per cent price rise

in a month, so that in a year it rises to about 130 per cent

times.Hyper inflation is a monetary disease.

Two Types of Inflation on the Basis of Cause of Origin: They

are Demand Pull Inflation and Cost Push Inflation.

Demand Pull Inflation: According to the demand-pull theory,

prices rise in response to an excess of aggregate demand over

existing supply of goods and services. It is also called excess-

demand inflation. In the excess-demand theories of inflation,

excess demand means aggregate real demand for output in

excess of maximum feasible, or potential, or full employment,

output (at the going price level). The demand-pull theorists point

out that inflation (demand-pull) might be caused, in the first

place, by an increase in the quantity of money. Demand-pull or

just demand inflation may be defined as a situation where the

total monetary demand persistently exceeds total supply of real

goods and services at current prices, so that prices are pulled

upwards by the continuous upward shift of the aggregate

demand function. Causes of Demand-pull inflation are

4) Increase in Public Expenditure 2) Increase in Investment 3)

Increase in money supply.

COST PUSH INFLATION

Cost push inflation or cost inflation is induced by the wage-

inflation process. This is especially true for a Country like India,

where labour intensive techniques are commonly used. Theories

of cost-push inflation (also called sellers’ or mark-up inflation)

came to be put forward after the mid-1950s.They appeared

largely in refutation of the demand-pull theories of inflation and

three important common ingredients of such theories are 1) that

the upward push in costs is autonomous of the demand

conditions in the concerned market 2) that the push forces

operate through some important cost component such as wages,

profits (mark up), or materials cost. Accordingly, cost-push

inflation can have the forms of wage-push inflation, profit-push

inflation, material-cost push inflation, or inflation of a mixed

variety in which several push factors reinforce each other and

that the increase in costs is passed on to buyers of goods in the

form of higher prices, and not absorbed by producers. Thus, a

rise in wages leads to a rise in the total cost of production and a

consequent rise in the price level, because fundamentally, prices

are based on costs.It has been said that a rise in wages causing

arise in prices may , in turn , generate an inflationary spiral

because an increase would motivate the workers to demand

more wages.

(Graphs of demand pull and cost push inflation)

Causes of Inflation

1) Over- Expansion of Money Supply: Many a times a

remarkable degree of correlation between the increase in

money and rise in the price level may be observed. The

Central Bank (India’s RBI) should maintain a balance

between money supply and production and supply of goods

and services in the economy. Money supply exceeds the

availability of goods and services in the economy, it would

lead to inflation.

2) Increase in Population: Increase in population leads to

increased demand for goods and services. If supply of

commodities are short, increased demand will lead to

increase in price and inflation.

3) Expansion of Bank Credit: Rapid expansion of bank credit is

also responsible for the inflationary trend in a country.

4) Deficit Financing: Deficit financing means spending more

than revenue. In this case government of India accepts

more amount of money from the Reserve Bank India (RBI)

to spend for undertaking public projects and only the

government of India can practice deficit financing in India.

The high doses of deficit financing which may cause

reckless spending, may also contribute to the growth of the

inflationary spiral in a country.

5) High Indirect Taxes: Incidence of high commodity taxation.

Prices tend to rise on account of high excise duties imposed

by the Government on raw materials and essentials.

6) Black Money: It is widely condemned that black money in

the hands of tax evaders and black marketers as an

important source of inflation in a country. Black money

encourages lavish spending, which causes excess demand

and a rise in prices.

7) Poor Performance of Farm Sector: If agricultural production

especially foodgrains production is very low, it would lead

to shortage of foodgrains, will lead to inflation.

8) High Administrative Pricing

Other reasons are capital bottleneck, entrepreneurial

bottlenecks, infrastructural bottlenecks and foreign exchange

bottlenecks.

EFFECTS OF INFLATION

1) Effects of Inflation on Business Community: Inflation is

welcomed by entrepreneurs and businessmen because they

stand to profit by rising prices. They find that the value of

their inventories and stock of goods is rising in money

terms. They also find that prices are rising faster than the

costs of production, so that their profit is greatly enhanced.

2) Fixed Income Groups: Inflation hits wage-earners and

salaried people very hard. Although wage- earners, by the

grace of trade unions, can chase galloping prices, they

seldom win the race. Since wages do not rise at the same

rate and at the same time as the general price level, the

cost of living index rises, and the real income of the wage

earner decreases.

3) Farmers: Farmers usually gain during inflation, because

they can get better prices for their harvest during inflation.

4) Investors: Those who invest in debentures and fixed-interest

bearing securities, bonds, etc, lose during inflation.

However, investors in equities benefit because more

dividend is yielded on account of high profit made by joint-

stock companies during inflation.

5) Inflation will lead to deterioration of gross domestic savings

and less capital formation in the economy and less long

term economic growth rate of the economy.

MEASURES TO CONTROL INFLATION

The measures to control inflation can be broadly divided into

TWO- Monetary and Fiscal Measures.

Inflation is primarily a monetary phenomenan.Hence, the most

logical solution to check inflation is to check the flow money

supply by devising appropriate monetary policy and carefully

implementing monetary measures. The Central bank’s monetary

management methods, devices for decreasing or increasing the

supply of money and credit for monetary stability is called

monetary policy. Monetary policy is a policy of money supply

influencing the quantity, cost and availability of money supply.

Central Banks generally use the three quantitative measures

namely:

1) Bank Rate Policy

2) Open Market Operations

3) Variable Reserve Ratio

1) Bank Rate Policy: Bank rate is the rate at which Central

Bank lends loans and advances to commercial banks. When

bank rates are hiked by the Central bank as a follow up of

this increased bank rate, commercial banks hike the rate of

interest. Bank rate is hiked during the period of inflation to

reduce money supply.During the period of falling prices

(deflation) central banks reduces bank rate to increase

money supply.As follow up, commercial banks reduce rate

of interest.At a low rate of interest, investors find it much

attractive to borrow money and make investment.

2) Open market Operations: Open market Operation means

open buying and selling of government securities by the

Central Bank for the Central Government. In India the term

‘opens market operations’ stands for the purchase and sale

of government securities by the RBI from/to the public and

banks on its own account. In its capacity as the

government’s banker and as the manager of public debt, the

RBI buys all the unsold stock of new government loans at

the end of the subscription period and thereafter keeps

them on sale in the market on its own account. Such

purchases of government securities by the RBI are not

genuine market purchases but constitute only an internal

arrangement between the government and the RBI whereby

the new government loans are sold not directly by the

government but through the RBI as its agent.

3) Variable Reserve Ratio: Under the existing law enacted in

1956, RBI is empowered to impose statutorily ‘Cash Reserve

Ratio’ (CRR) on commercial banks anywhere between 3 per

cent and 15 per cent of the net demand and time liabilities.

It is the authority of the RBI to vary the minimum CRR

which makes the variable reserve ratio a tool of monetary

control. It may be noted that the RBI pays interest to banks

on the additional required reserves over the minimum CRR

of 3 per cent.

Fiscal Policy

Fiscal policy is the policy of the government implementing

through the government treasuries. Fiscal policy intervention

areas are taxation, public expenditure, borrowing, subsidies and

deficit financing. Inflation means a general rise in prices. To

control inflation policy should be directed to reduce the price

level and control excess money supply. First measure is reducing

indirect taxes. High indirect taxes lead to increase in the prices

of goods and services. So to reduce the prices of goods and

services widely used by common people and intermediate goods,

the indirect taxes should be reduced. Increased public

expenditure leads to increase in the level of economic activities

and more income to people.It also leads to increase in money

supply.So during the period of inflation, we should reduce excess

public spending/public expenditure.

Deflation

Deflation is just opposite of inflation. It is essentially a matter of

falling prices. Deflation is that state of falling prices when the

output of work by productive agents increases relatively to

money income. Deflation arises when the total expenditure of the

community is not equal to the value of output at existing prices.

Consequently, the value of money goes up, and prices fall. In

short, deflation is a condition of falling prices, accompanied by

the decreasing level of employment, output and income.

Definitions of Economics

The book of Adam Smith “An Enquiry into the Nature and Causes

of Wealth of Nations” popularly known as Wealth of Nations,

published in the year 1776, laid the strong foundation for the

growth of Economics. So Adam Smith is rightly called the

“Father of Economics” and pioneer of Classical Economics.

Although there is a plethora of definitions, there is no concensus

among economists about a precise definition of economics.

Stock Exchange: Stock exchange is a place where

second-hand securities are bought and sold.Stock exchange is

essential for industrial development and a developed stock

exchange is one of the features of a developed industrialized

country.

Wealth Definition

The early classical economists defined economics mainly as a

study of wealth.To his famous treatise, Adma Smith gave the

suggestive tittle ‘An Enquiry into the Nature and Causes of

Wealth of Nations’. It means economics investigates into the

nature of wealth and the laws of production and distribution. The

atmosphere of the Industrial Revolution marked by

unprecedented material prosperity and accumulation of wealth

should naturally justify the scope which these economists

assigned to economics.

Criticism of wealth Definition

1) Too much Emphasis on wealth : Literary writers and

religious leaders strongly voiced their protest against the

study of economics because of its too much attachment to

wealth.Adam Smith treated economics as political economy

and therefore emphasized the importance of wealth from a

national angle

2) Restricted Meaning of Wealth: The classical definition

considered wealth as, material goods only, like table,

radio,furniture etc.Non-material services of drivers,

singers,teachers,professors etc are not taken as wealth.But

in modern days wealth denotes both goods and services,

material wealth and human wealth.

3) Concept of Economic Man: Classical wealth definition was

based mainly upon the assumption of an ‘economic man’

who had no consideration for love, affection, sympathy,

patriotism etc.In other words, an economic man was

supposed to give attention to economic activities only.But in

reality human behaviour cannot be properly understood and

analysed unless the other motives are also given due

weightage.

4) No Mention of man’s Welfare: Wealth definition explains the

wealth-getting and spending activities of man It pays no

attention to the equity principle which is of paramount

importance to maximize the welfare of the society.

5) Economic Problem: Wealth definition is silent over the

basic economic problem of meeting unlimited wants with

scarce means.In other words, the central problem of

economics is not at all touched by wealth definition.

Welfare Definition

Adam Smith’s wealth definition made economics a dismal

science.Alfred Marshall was the first neo-classical economist to

rescue economics from ridicule, condemnation and

misunderstanding. So Marshall gave welfare definition to

economics in his classic work ‘Principles of Economics’,

published in 1890.His definition shifted the emphasis from

wealth to human welfare. According to him wealth is simply a

means to and an end in all activities, the end being human

welfare.

Marshall defines “economics is a study of man kind in the

ordinary business of life; it examines that part of individual and

social action which is almost closely connected with the

attainment and with the use of the material well being.” He adds

that economics is on the one side a study of wealth; and the

other and more important side, a part of the study of man. That

is Marshall gave primary importance to man and secondary

importance to wealth.

Criticism of Welfare Definition

1) Material and Non-Material Welfare: Lionel Robbins begins

his attack by pointing out that economists should not

narrow down the scope of economics by confining their

attention to the study of material welfare alone. The

services of teachers, actors, singers, lawyers etc. do

promote welfare and such welfare may be termed as non-

material welfare. The above mentioned services have much

economic significance because they are scarce in relation in

relation to demand and possess value.

2) Objection to material: Robbins objects not only to the word

‘material’ but also to the very idea of ‘welfare’. For the neo-

classical economists, economics is concerned with the

causes of material welfare. According to Robbins, there are

certain material activities which do not promote welfare.

The manufacturers of intoxicants such as wine and opium

are certainly economic activities. But they are not conducive

to human welfare.

3) Welfare cannot be measured: The neo-classical economists’s

idea of welfare is based on cardinal utility. But utility is a

psychological entity which cannot be measured. It varies

from person to person, place to place and time to time.

Therefore, the concept of welfare based on measurable

utility is elusive in character.

4) Economics is a Social Science: Robbins disputed the

Marshallian conception of economics as a social science.The

study of man as they live and move and think in the

ordinary business of life.According to Marshall, the

activities of an individual living in seclusion like a

Himalayan Sadhu or Robinson Crusoe fall outside the orbit

of economics.Robbins on the other hand regards economics

as a human science.The central problem in economics,

according to Robbins is the allocation of scarce means

among alternative ends.

Scarcity Definition

After rejecting the materialist definition of Marshall,Lionel

Robbins formulated his own conception of economics in his book

“ The Nature and Significance of Economic Science” published in

1932. In the words of Lionel Robbins, “Economics is the science

which studies human behaviour as a relationship between ends

and scarce means which have alternative uses.” He deduced his

definition from our fundamental characteristics of human

existence.

1) Unlimited Wants: “Ends” refers to human wants which are

boundless but the resources available to satisfy these wants

are limited. Some wants are inborn but others are acquired

through customs and conventions. When one want is

satisfied another crops up.

2) Scarcity of Means: The resources (time or money) at the

disposal of a person to satisfy his wants are limited. The

external world does not offer full opportunities for their

complete achievement. If things are available in abundance

just like free goods, the economic problem will not arise.

3) Alternative Uses of Scarce Means: Economic resources are

not only scarce but are also versatile. If the resources

cannot be put to alternative uses, the question of choice will

not arise. We may use land for raising crops or for building

houses. We cannot do both. If we choose one thing, we must

give up others.

4) The Economic Problem: When the means at the disposal of a

person are limited and the resources can be put to several

uses and when wants can be graded on the basis of

intensity, the behaviour necessarily takes the form of

choice. Thus the choosing of one is at the cost of another. In

order to make choice scientific, some form of pricing

process is inevitable.

Criticism of Scarcity Definition

Robbins’ definition is based on two foundation stones-

multiplicities of wants and scarcity of means.

1) Economics of Abundance: According to Robbins, economic

problem arises due to scarcity. But economic problems may

also arise due to plenty rather than scarcity as had

happened during the great depression of 1930s.Professor

John Kenneth Galbraith, a noted American economist in his

book,” The Affluent Society”, states that scarcity is not a

problem in America. So that the conventional scarcity idea

has only little relevance.

2) Not Applicable to Underdeveloped Countries: Robbins

definition provides no solution to the problems of

underdeveloped countries. A peculiar feature of many under

developed countries is that the resources are not scarce,

but they are either under utilized, or unutilized. Robbins

simply assumes the resources as given and analysed their

allocation among alternatives uses.

Growth Definition

Economics has now become a fastly growing discipline in the

field of social science and its scope and significance have

widened from mere a value theory or a theory of resource

allocation. The credit for revolutionizing the study of economics

surely goes to Lord JM Keynes. Keynes defined economics as the

study of the administration of scarce resources and the

determinants of income and employment.

Professor Paul.A Samuelson has given a definition based on

Growth aspects which is known as the Growth Definition.

“Economics is the study of how people and society end up

choosing, with or without the use of money, to employ scarce

productive resources that could have alternative uses to produce

various commodities and distribute them for consumption, now

or in the future, among various persons or groups in society.

Economics analyses the costs and the benefits of improving

patterns of resource use”.

Firstly, it is applicable even in a barter economy where money

measurement is not possible.

Secondly, the inclusion of time element makes the scope of

economics dynamic.

Thirdly, this definition possesses universality in its application.

Thus we may conclude that though in a sense it is similar to

Robbins’ definition, it is an improvement over Robbins’ scarcity

definition.

Production Possibility Curve

The concept of production possibility curve was introduced by

Professor Samuelson.The set of problems facing in every

economic system can be clearly analysed with the tool of

production possibility curve. Human wants are unlimited and the

economic resources to satisfy these unlimited human wants are

scarce or limited. Therefore, the every society faced with the

basic problem of choosing and allocating its scarce resources

among alternative uses. Production Possibility Curve shows the

menu of choice along which a society can choose to substitute

one good for another assuming a given state of technology and

given total resources. The production possibility curve illustrates

three concepts: scarcity, choice and opportunity cost.

Modern economy produces thousands of products, and therefore

choices before us are complex. In order to reduce the problem to

its simplest form we consider the economy in which two goods

‘butter’ and ‘guns’ are produced with the available resources and

technology.

Production Possibility Curve is based on the following

Assumptions:

1) Only two goods x (butter) and y (guns) are produced in the

economy.

2) There is full employment of resources.

3) The resources are fixed in quantity. But they can be re-

allocated from the production of one commodity to that of

another.

4) The state of technology is given and constant.

5) The time period is short

Law of Supply

The law of supply states that the functional relationship between

price and the quantity offered for sale. The law of supply states,

other things remaining same, the higher the price, the greater

will be the willingness of sellers to make a product available. At

higher prices, more sellers are interested in producing the

product, and each existing seller wants to sell more.The opposite

holds good when prices decline.

Factors Determining the Supply of a Commodity

The supply of a commodity depends upon the following factors.

1) Different firms may follow different objectives.Some firms

may be interested in maximizing profit, while others may be

interested in sales or revenue maximization or satisfying

etc.The amount of commodity supplied is often influenced

by the objectives of the firm.Normally, sales maximization

firm’s output will be greater than the profit maximization

firm’s output.

2) State of Technology: Technical improvements reduce the

costs of production enbling a shifting a shifting of the

supply curve to the right.Similarly, obstacles in the existing

technology increases costs of production, forcing a shift in

the supply curve to the left. A constant state of technology

keeps the supply at the existing level.

3) Political Disturbances: Political disturbances may

destabilize trade and thus create a scarcity for certain kinds

of goofs’

4) Government Policy: Any change in government’s policy

would affect the production sector and thereby the supply of

goods and services in the market. The government policy

related to tax and subsidy will have serious impact on the

production and supply of goods and services in the market.

Law of Demand

Meaning of Demand

Demand is essential for the Creation, Survival and Profitability of

a firm. It is essential to distinguish between demand and desire.

A beggar’s demand for a Maruti car is only s desire and does not

constitute a demand. A miser may possess enough money but he

may not be willing to spend it. In this case also desire will not be

called demand. Therefore, demand is not merely a wish or desire

but an effective demand, this is, desire backed by purchasing

power and willingness to buy.

Demand has the following Four characteristics

1) Price: Demand is always related to price. It is meaningless

to say that demand for refrigerator in the market is one

thousand. The person must state the price at which the

consumer is prepared to purchase the said quantity of the

commodity.

2) Time: Demand always means demand per unit of time, per

day, per week, per month or per year.

3) Market: demand is always related to the market. Market

here simply refers to the contact between buyers and

sellers. There is no need for a definite geographical area.

4) Amount: Demand is always a specific quantity which a

consumer is willing to purchase. It is not an approximation,

but is to be expressed numerically.

Demand Schedule: A demand schedule is a list of prices and

corresponding quantities. Since the demand schedule obeys the

law of demand, price and quantity demanded vary inversely The

following is the hypothetical demand schedule of an individual.

Types of Demand: There are three kinds of demand,

1) Price Demand

2) Income Demand

3) Cross Demand

1) Price Demand: Price demand refers to the various

quantities of a commodity that a consumer would purchase

at a given time in the market at various hypothetical prices.

2) Income Demand: Income refers to the various quantities of

a commodity that a consumer would purchase at a given

time in a market at various levels of income.

3) Cross Demand: The relationship between the prices of a

substitute or complements and the quantity purchased of a

related commodity is called cross demand.

Law of Demand: The inverse relationship between the price of a

commodity and its quantity demanded per unit of time is referred

to as the law of demand. In the words of Prof. Samuelson, “Law

of demand states that people will buy more at lower prices and

buy less at higher prices, other things remaining the same.” The

phrase “other things being equal” is an important qualification;

when we say “other things being equal” we assume;

1) No change in the consumers’ income.

2) No change in the prices of substitutes and complements

3) No change in consumers taste and preferences

4) No new substitutes for the goods have been discovered

5) People do not feel that the present fall in price is a preclude

to a further decline in prices.

6) The commodity in question is not one which has a prestige

value.

Determinants of Demand

According to D.S Watson a change in demand is caused by

changes in income . tastes and prices of substitutes and

complements.The various determinants of demand are listed

as follows.

1) Changes in Tastes and Fashions: The demand for some

goods and services is very susceptible to changes in tastes

and fashions.If a commodity becomes more fashionable a

larger quantity of it may be bought at the old price or even

at a slightly higher price. The fashion among ladies to keep

their hair long or short brings about changes in demand for

their hair-pins, hair-nets etc. Similarly if tastes have

deteriorated for a product, less of it will be deamanded

without any rise in its price.

2) Changes in Weather : An unusually dry summer results in a

decrease in the demand for umbrellas.The demand curve in

such a case shifts to the left.

3) Channges in Income and Distribution of income: An

increase in family income increases the demand for

durables like video recorders and refrigerators.The demand

curve then shift to the right., More over, if income in a

country is evenly redistributed by taking the rich and

transferring it to raise the income of the poor, it may

increase the demand for goods consumed by the poor

people.

4) Changes in expectations: Expectations also bring about a

change in demand.Rumours that the government is going to

levy fresh taxes on a particular good may push the in favour

of purchasing more of that commodity alone.

5) Changes in Savings: Savings and demand are inversely

related.If the marginal propensity to save becomes high the

amount available for consumption will become less. The

demand will therefore decrease.

6) State of Trade Activity: During the periods of boom and

prosperity, the demand for all commodities tends to

increase. On the contrary, during times of depression there

is a general slackening of demand.

7) A Change in Real Income: As money income increases, real

income also increases. If the income goes to the rich,

demand does not increase as much as it increases when

such income benefits go to the poor.The simple reason is

that the marginal propensity to consume of the rich is less

than that of the poor.

8) Consumer Credit Policy: With a liberalization in the credit

policy of the banks or the hire purchase system adopted by

companies, the demand for VCRs,Cars, houses etc will

increase.

9) Advertisement: In advanced capitalist countries advertising

is a powerful instrument affecting the demand in the

market.

10) Taxation and subsidy: If fresh taxes are levied or the

existing rates of taxation on commodities are increased,

their prices go up.The demand for such commodities will

decrease. On the other hands, if rebates and subsidies are

given as in the case of consumer products during festival

seasons, the demand will increase.

11) Change in the value of money:During times of inflation,

the prices will rise. Therefore, consumers will have to their

expenditure pattern so that the demand for certain products

will have to be reduced and for others stimulated.

12) Change in Population:The demand for goods and

services depend on population.As population increases

demand increases and vice versa.

MEANING OF PRODUCTION

In economic terminology ‘production’ implies creation of utility

for sales. The act of utility creation is possible by transforming

inputs into output. According to Prof.Hicks, “production is any

activity directed to the satisfaction of the people’s wants

through exchange.” Production is an activity of converting inputs

into out put with the help of technology or mode of production.

In production process we use four factors of production ie; land,

labour,capital and organization.For engaging in economic

activity, these factors would get rewards. Land or building would

get rent as its reward,labour would get wage / salary,capital

would get profit and organizer would get profit as the reward.

Knowledge is the only instrument of production that is not

subject to diminishing returns – J.M.Clark, 1957

The production function shows only the physical relationship

between inputs and output, but says nothing about the optimal

combination of inputs.

Two things must be noted when we discuss production function.

1) It must be considered with reference to a particular period

of time.

2) It is determined by the state of technology.Any change in

technology may alter output, even when the quantities

inputs remain fixed.

Law of Returns to Scale

The law of returns to scale examines the relationship between

output and the scale of inputs in the long-run when all the inputs

are increased in the same proportion.

Assumptions

This law is based on the following assumptions

1)All factors are variable but the enterprise is fixed.

2) There is no change in technology

3) Perfect competition prevails in the market.

4) Returns are measured in physical terms.

Three Phases of the Law of Returns to Scale.

First phase is increasing returns to scale

Second phase is constant returns to scale

Third phase is diminishing returns to scale.

Depending on whether the proportionate change in output

exceeds, equals or decrease in proportionate to the change in

both the inputs, the production is classified as increasing

returns to scale, constant retuns to scale and decreasing returns

to scale.

Increasing Returns to Scale

Increasing returns to scale arises due to the following reasons.

a) Dimentional economies,2) economies flowing from

indivisibility 3)Economies of specialization 4) Technical

economies, 3) Managerial economies, 6) Marketing

economies

Marshall exlains increasing increasing returns in terms of “

increased efficiency” of labour and capital in the improved

organization with the expanding scale of output and employment

of factor unit.It is referred to as the economy of organization in

the earlier stages of production.

Constant Returns to Scale: As a firm continues to expand, it

gradually exhaust the economies, internal and external, which

enabled the operation of increasing returns to scale. In this

stage, the economies and diseconomies of scale are exactly in

balance over a particular range of output. In the case of constant

returns to scale increases in all the inputs cause proportionate

increases in output.

A production function showing constant retuns to scale is often

called ‘Linear and Homogeneous’ or ‘Homogeneous of the first

Degree’.The Cobb-Douglas production function evolved by the

American economists Cobb and Douglas is a linear and

homogeneous production function.

Diminishing Returns to Scale

When a business firm continues to expand even beyond the point

of constant returns, stage comes when diminishing returns to

scale set in. There are decreasing returns to scale when the

percentage increase in output is less than the percentage

increase in iutput. As the size of the firm expands, managerial

efficieny decreases.Another factor responsible for diminishing

retuns to scale in the limitation of exhaustibility of the natural

resources, for example, doubling of coal-mining plants may not

double the coal output, because of limited availability of coal

deposits or due to difficult accessibility to coal deposits.

The Law of Variable proportions OR Law of Diminishing

Returns

The law of variable proportions is one of the basic laws in

economics. The law of variable proportions is the modern version

of the law of diminishing returns. This law states that a technical

physical relationship between the fixed and variable factors of

production in the short run. Here it is assumed that only one

factor of production is a variable factor while other factors are

assumed to remain fixed. As we increase the quantity of the

variable factor while keeping other factors constant, the output

of the variable factor may increase more than proportionately in

the initial stages of production, but eventually it will not increase

even proportionately. Alfred Marshall, a neo-classical economist,

considered the law of diminishing returns in relation to

agriculture only.

The law of variable proportions has been defined in the following

way; “As the proportion of one factor in a combination of factors

is increased, after a point, first the marginal and then the

average product of that factor will diminish”.

Assumptions of the Law

The law of variable proportions is valid when the following

conditions are fulfilled.

1) The state of technology is given below

2) Only one factor is varied and all other factors remain fixed.

3) The fixed factor and the variable factor are combined

together in variable proportions in the process of

production.

4) The units of the variable factor are homogeneous

5) The law operates in the short run.

Total Product (TP) : Total Product is the amount of output

produced from land with the given number of labourers

employed.

Average product (AP): The average product of labourer is the

total product (TP) divided by the number of labourers employed

AP =TP/No.

Marginal Product (MP): The marginal product is the change in

the total product due to change in labour.

DIAGRAM

Law of Supply

The law of supply states that the functional relationship between

price and the quantity offered for sale. The law of supply is a

hypothesis that states, other things remaining same,, the higher

the price, the greater will be the willingness of sellers to make a

product available. At higher prices, more sellers are interested in

producing the product, and each existing seller wants to sell

more.The opposite holds good when prices decline.

The law of supply can be explained with the help of a schedule

and a curve.

Supply Schedule: Supply schedule represents the relationship

between prices and the quantities that the firms are willing to

produce and supply.

SUPPLY SCHEDULE

SUPPLY CURVE

MARKET SUPPLY CURVE

MARKET SUPPLY SCHEDULE

ECONOMIC REFORMS

NEW ECONOMIC REFORMS OF 1991

Changing Global Scenario

Several major economic and political changes occurred during

the 1970s and 1980s, which affected the developing countries

and paved the way for the implementation of IMF-sponsored

Structural Adjustment Policies (New Economic Policy) in India in

1991. This was due to a combination of factors such as stagnant

agriculture, low levels of industrial growth and diversification,

inadequate capital formation, adverse terms of trade in

international markets, limits to domestic resource mobilization

due to a fairly narrow tax-base, loss making public sector

enterprises, over regulated and controlled economy, poor

industrial productivity, huge amount of fiscal deficit, huge

amount of public debt, poor rating of Indian economy by

international agencies, foreign exchange crisis etc.

New Economic Policy of 1991 includes globalization,

liberalization and privatization (Disinvestment)

1) Globalization means flow capital (finance in the form of

foreign direct investment (FDI) and foreign portfolio

investment (FPI), technology, human resource, goods and

service among countries. FDI is investment in real assets

like automobile, consumer goods production, service sectors

like insurance, telecommunication, air transport etc.

2) Liberalisation means freeing the economic activities and

business from unnecessary bureaucratic and other controls

imposed by the governments.

3) Privatisation or Disinvestment: Selling the government

owned public sector enterprises to private industrialists and

opening the government operating sectors for private

investment.

The New Economic Policy includes reduction in government

expenditure, opening of the economy to trade and foreign

investment, adjustment of the exchange rate from fixed exchange

rate system to flexible exchange rate system, deregulation in

most markets and the removal of restrictions on entry, on exit,

on capacity and on pricing.

Immediate consequences of economic liberalization that are to

focus on are (a) an increase in internal and external competition

and (b) structural change induced by changes in relative prices

in the economy.

The Major areas of New Economic Policy 1991 are

1) Fiscal policy reforms

2) Monetary policy reform

3) Pricing policy reform

4) External policy reform

5) Industrial policy reform

6) Foreign investment policy reform

7) Trade policy reform

8) Public sector policy reform

The principal reforms initiated in the year 1991 included;

reduction in import tariffs on most goods other than consumer

goods, removal of quantitative restrictions and liberal terms of

entry for foreign investors. India’s simple average tariff rate was

reduced from 128% in 1991 to about 32.3% in 2001-02. Quotas

and non-tariff barriers were also reduced.. To restore Macro

economic stability, the reforms package of structural adjustment

policies are aimed at freeing markets by dismantling controls on

production, prices and trade and reducing intervention in the

economy. The need to control the fiscal deficit led to policies to

curb public expenditure and these cuts were mainly on social

sector expenditure and on production and consumption

subsidies, which directly affected the living standards of the

economically vulnerable sections of the population. Privatisation,

Liberalisation and export-promotion were the main features of

the economic reforms recommended by the international

institutions for the problems facing by the developing

countries .At the same time, the role of the state in advanced

industrial economies was not shrinking as expected, but growing

despite the ideological bias in favour of a “rolled back” state. The

share of national income spends by government, which averaged

30% in the rich industrial countries in 1960 increased to 42.5%

by 1980 and 45% by 1990.The experiences of countries, which

have undergone these reforms, have in most cases not led to the

expected outcome but have infact worsened the state of their

economies. In India, the New Economic Policy (NEP) is a set of

policy (ies) and administrative procedures introduced in July

1991 to bring about changes in the economic direction of the

country.

Industrial Policy Resolution 1991 (IPR-1991)

Industrial Policy

The regulatory policy framework which acted as a barrier to

entry and growth by the entrepreneur was sought to be basically

changed by the Industrial Policy announced in July 1991.The

measures introduced in this area along with other economic

reforms were as under: Industrial licensing has been abolished

for all projects except for a list of 15 industries related to

security, strategic or environmental concerns and certain items

of luxury consumption that have a high proportion of imported

inputs. The exemption from licensing also applies to the

expansion of existing units.

Industrial licensing was abolished for all projects except

for a list of 15 industries related to security, strategic or

environmental concerns and certain items of luxury

consumption that had a high proportion of imported

inputs.

The Monopolies and Restrictive Trade Practices (MRTP)

Act applied in a manner which eliminated the need to

seek prior government approval for expansion of present

undertakings and establishment of new undertakings by

large companies.

The set of activities henceforth reserved for the public

sector was much narrower than before, and there would

be no ban on the remaining reserved areas being opened

up to the private sector.

Foreign Investment Policy

The Industrial Policy 1991 also provided increased

opportunities for foreign investment with a view to take

advantage of technology transfer, marketing expertise and

introduction of modern managerial techniques. It was also

intended to promote a much – needed shift in the composition of

external private capital flows. The following measures were

announced in this regard:

Automatic approval would be given for direct foreign

investment upto 51 per cent foreign equity ownership in

a wide range of industries. Earlier, all foreign investment

was generally limited to 40 per cent.

To provide access to international markets, major foreign

equity holdings upto 51 per cent equity would be allowed

for trading companies primarily engaged in export

activities.

Automatic permission would be given for foreign

technology agreements for royalty payments upto 5 per

cent of domestic sales or 8 per cent of export sales or for

lumpsum payments of Rs.10 million. Automatic approval

for all other royalty payments will also be given if the

projects can generate internally the foreign exchange

required.

Abolished MRTP Act and FERA and instead of FERA,

FEMA Act was passed in the Parliament.

The threshold (Minimum) asset limit for companies under

MRTP Act was raised from Rs.20 crores to Rs.100 Crores.

Public Sector Policy

The Government was of the view that public sector had not

generated internal surpluses on a large scale. On account of its

inadequate exposure to competition; the public sector was

subject to a high cost structure. To provide a solution to the

problems of the public sector, Government decided to adopt a

new approach, the key elements of which were:

The existing portfolio of public sector investment would be

reviewed with a greater sense of realism to avoid areas

where social considerations were not paramount or where

the private sector would be more efficient.

Enterprises in areas where continued public sector

involvement was judged appropriate would be provided a

much greater degree of managerial autonomy.

Budgetary support to public enterprises would be

progressively reduced

To provide further market discipline for public enterprises,

competition from the private sector would be encouraged

and part of the equity in selected enterprises would be

disinvested; and

Chronically sick public enterprises would not be allowed to

incur heavy losses.

As a follow up of this policy, several measures were taken:

The number of industries reserved for the public sector was

reduced from 17 to 8. Even in these areas, private sector

participation was allowed selectively. Joint ventures with

foreign companies would be encouraged.

Public enterprises that were chronically sick and unlikely to

be turned around would be referred to the Board for

Industrial and Financial Reconstruction (BIFR) for

rehabilitation or restructuring.

The existing system of monitoring public enterprises

through Memorandum of Understanding (MOU) was

strengthened with primary emphasis on profitability and

rate of return.

Initiated the disinvestment of public sector enterprises.

Global Financial meltdown in 2008

In the western capitalists economies and the economies closely

linked to the United States economies were negatively affected

by this financial crisis of 2008. That is all the economies having

economic relationship with each other were affected by this

financial crisis of 2008 so it is called a global financial crisis.

Capitalism is a system of economic organization featured by the

private ownership and the use for private profit of man-made and

nature-made capital. It is clear that under capitalism all means of

production such as farms, factories, mines, transport,

communication, education etc are owned and controlled by

private individuals and firms. Private initiatives and ideas are

promoted and respected highly and there is personal freedom

and liberty.

The global financial crisis of

2008 is an extreme manifestation of the crisis in the capitalism

due to wrong practice and misuse of freedom enjoyed by the

financial institutions in the United States of America. Indian

economy was more integrated to the global economy after the

introduction of the New Economic Policy (NEP) of 1991. This

encouraged more integration of the Indian economy with the

global economy.But in the Indian banking system, nearly 90 per

cent of the banking institutions are in the public sector and our

financial sectors are well regulated by the Reserve bank of India

(RBI). So this financial management system, to a greater extent

insulated Indian economy from the global financial crisis.

The Major Reasons for the Global Financial Crisis are

1) Consumption was seen as the driver of economic growth

and prosperity and debt to facilitate such consumption was

consequently seen as a good thing. This had led to the

rather extreme situation in which vendor financing (i.e.,

lending of money by producers to consumers for purchasing

products they produce) of the US by the developing nations

was seen as a necessary business practice.

2) The sub-Prime Crisis – Sub-Prime Lending is the latest

chapter in the story of the economics of greed wrapped as

modern economics, a process in which the US’s entire

financial architecture — the government and the Federal

Reserve System (the Central Bank of the US like India’s

RBI) is involved. The sub-prime crisis is now presented as

the villain of US economy as also the global economic scene.

Sub-prime lending refers to loans given to persons who, in

simple terms, are unfit to borrow. That is, no lender will

part with his own money to such a borrower. Two reasons

are there. First, such lending was popularised from the

White House to ordinary American homes as achieving a

noble purpose to induce Americans to borrow and shop for

their country. That is, it was part of the patriotic duty the

Americans as a whole to borrow and shop.

The Major Features of the Present Global Financial Crisis are

1) The Current US recession is much deeper than in 1991 or

2001.

2) Yet Asia’s growth will slow by less than in the previous US

recessions. It is now less dependent on US demand.

3) Asia is led by India and China increasingly becoming

important as the engines of global growth.

4) This global financial crisis is the beginning of the end for the

dollar as the main reserve currency

5) The USA has been borrowing $ 3 billion every day to fund its

spending

6) The USA’S national debt is more than $10 trillion, which is

more than 80 per cent of its national income.

7) The budget deficit is skyrocketing; it is expected to reach mote

than 10 per cent soon.

8) The federal deficit as percentage of GDP is now expected to

reach more than 10 per cent.

9) Unlike the Great Depression of the 1930s, the current crisis of

the West is not just an economic crisis. It has a dimension of

demography and conflict.o it. Demographic, because Europe is

slowly fading away from the global map. It used to have more

than 20 per cent of the global population during the First World

War, and now has less than 11 per cent. It is expected to shrink

to three per cent in as many decades. The reproductive rate in

many European countries is less than 1.5 whereas the stable one

is 2.1. In the case of US, the crisis is more severe due to its

declining savings rate.

10) The personal saving as a percentage of disposable income

has now become negative.

The debt ridden financial institutions like Lehman Brothers’

assets were $ 690 billion and capital was $ 22 billion. Lehman

filed for the biggest bankruptcy in American history. Merrill

Lynch assets were $ 1020 billion and capital was $ 32 billion,

Freddie Mac’s assets were $ 794 and capital was $ 27 billion,

Fannie Mae’ assets were $880 billion and capital was $ 44

billion, Bear Stearns’s was $ 400 billion and capital was $ 11

billion. The allegations that ratings are not forward looking has

been proved right in more than one occasion in the current

financial crisis. Many repackaged sub-prime loans were rated

high by global credit rating agencies, down graded only after

accelerated defaults and stoppage in trading. Ratings are not

sancrosanct and lenders need to form own view about the credit

worthiness of borrowers, independent of any external ratings.

Conclusions

Asia is more important than the US as a driver of global

economic growth. Thanks to the vigour of Asia and other

emerging economies, a US recession need not drag the whole

world into recession. A prolonged downturn in the US, while

emerging economies continue to grow rapidly will reinforce the

shift in global power from the old industrial world to the new

emerging markets. In future the world economy will be steered

not by the US and Europe, but increasingly by India and China.

As Maharishi Aurobindo says: “India shall arise upon the ruins of

the West”. He says by the year 2011 the Western countries will

fall and India will rise. The question is, are we getting ready to

create a new world order?

Keynesian Theory

Keynes’s Theory and Underdeveloped Countries.

Lord John Maynard Keynes wrote the General Theory of

Employment, Interest and Money as a solution to the problem of

periodic unemployment faced by developed industrial nations of

the West during the great depression of the thirties. Keynesian

theory singles out deficiency of effective demand as the major

cause of unemployment and low level of income in industrial

economy operations under a laissez faire system. Deficiency of

effective demand is a prominent feature of economies

undergoing depression and in order to improve the level of

effective demand in an economy. Keynes suggested policy

measures like cheap money policy, government’s compensatory

investment spending, deficit financing and other fiscal methods.

In essence, therefore, Keynesian economics turn out to be

economics of depression applicable to developed countries. Its

applicability in underdeveloped countries is very limited. To

quote Joan Robinson: “ Keynes’s theory has little to say directly,

to the underdeveloped countries, for it was framed entirely in the

context of an advanced industrial economy, with highly

developed financial institutions and a sophisticated business

class.

Though Keynesian Economics has revolutionized modern

economic thinking, it has inherent weaknesses:

1) It is fundamentally a capitalistic theory. It basically

examines the determinants of employment in a free

enterprise economy. Though Keynes suggests government

intervention and controlled capitalism his theory fails to

deal with the socialist economic system. In communism,

Keynes is as Ricardo.

2) Keynesian economics is, by and large, characterized as

depressionary economics. It was the outcome of the Great

Depression of the Thirties. It suggested policy measures like

deficit financing to solve the problem of unemployment in a

depressionary phase of the capitalist economy. In the era of

inflationary situation, the theory has not much validity.

3) Keynes’s theory deals with short-run phenomena only. It

pays little attention to the long-run problems of a dynamic

economy.

4) Keynesian theory is not strictly applicable to

underdeveloped countries. Keynes deals with the problem of

cyclical unemployment. Underdeveloped countries have the

problem of chronic unemployment and disguised

unemployment. Keynes encouraged spending and

condemned savings.But; poor countries need curbs on

spending and increase in savings for capital formation and

wide-scale investment to break the vicious circle of poverty.

In short, Keynes’s theory is not really “general” in

application as Keynes claimed.

5) One dangerous practice is that the solution to global

economic crisis and depression in advanced capitalism was

sought to be applied for solving the economic crisis of less

developed countries. In fact in the west there are

arguments against Keynes’s economics that it is not

Keynesian economics but the Second World war revived the

world economy. Keynesian revolution succeeded the

industrial revolution as an adhoc theory of countering the

industrial depression in Britain during the thirties, just

before the Second World War, became the all-encompassing

theory of development. Dennis Robertson at the out set of

his Cambridge lecturers, delivered between 1945-46 to

1956-57, warned the under graduate students about the

controversial nature of Keynes’s General Theory and to

supplement its readings by critical writings on the same.

6) Laws of economics are relative and valid for particular

situations in the economic history of a nation. To the British

economists, the economic forces generated by the industrial

revolution in that country was universal and economic laws

were accordingly formulated. What was good for Britain

was good for the entire world, irrespective of differences in

socio-economic conditions. But great personalities like

Arnold Toynbee argued against this dominant view and the

need for region specific models of development. His dream

of this way of study never materialized because of his

premature death and lack of followers. Adam Smith

advocated free trade at a time when British manufacturing

industries, particularly the textile mills had increased their

capacity through various practical innovations. Trying to

universalize economic laws has been one of the greatest

disservices to the science of economics. The attempt by the

third world countries to formulate their development plans

on the basis of these economic laws has created serious

imbalances in their economy and has kept them perpetually

indebted, leading to erosion of their economic

independence.

7) Lord John Maynard Keynes (J.M. Keynes) was a great

advocate of easy money policy and abundance of credit for

economic prosperity. Keynesian prescriptions failed in

developing countries due to inelastic nature of agriculture

sector and high inflation. Keynes found D.Robertson’s ideas

inconvenient and chose to ignore it. An academically and

theoretically sound thesis will not shy away from an

academic debate. The relation between agriculture and

industry does not form a part of the theoretical frame work

of the General Theory of Keynes. Keynes was highly

intolerant of his critics and he had high hope in capitalism

and he could avoid economists jumped into Marxist band

wagon. Indian planning was over influenced by Keynesian

school because of the economic experts trained in British

Universities or Anglo-Saxon schools. In India Dr.B.S.Minhas

resigned from Planning Commission protesting against high

inflationary practice (Keynesian model of deficit

financing).But no one from the academic world or Planning

Commission came to his support. It is of importance to note

that deficit financing started with the recommendation of

the IMF in its report in 1953.N.Kaldor says that the deficit

financing imply a corresponding increase in privately owned

wealth.

Conclusion

Although the policy measures suggested by the Keynesian theory

may not be suitable to the problems of underdeveloped

countries, it does not mean that Keynesian economics has no

significance. Indeed, Keynesian methodology of thinking in

macro-economic terms is very essential and appropriate in

understanding the major problems of any economy, whether

developed or developing. However, in view of the changing

institutional set-up of the developing economies during the

process of planning and socio-economic reforms, Keynesian tools

have to be adopted with suitable modifications.

Faster Moving Consumer Goods (FMCG)

Indian FMCG sector is the fourth-largest sector in the country,

with a current turnover of over US$ 28 billion (Rs. 113,000

crore), including tobacco. Most large FMCG categories managed

to grow in the healthy double digits in 2008 in India. Breaking

down the sales growth into categories, detergents, which saw

sales value expand by over 25 per cent in 2008, were among the

fastest growing categories. Soaps and shampoos grew by about

16 per cent each and beverages such as packaged tea and coffee

expanded 13-16 per cent, according to industry estimates.

Categories such as toothpaste and confectionery managed lower

growth of 14-15 per cent in the same period. Sales growth for

the 15 large listed FMCG companies actually accelerated from

14.5 per cent in the last two financial years to 20 per cent in the

first nine months of 2008-09.High penetration categories like

soaps and detergents reported flat volumes due to sharp price

increases and weight reduction.

The FMCG market shifts from a period of relatively effortless

growth to a more challenging environment. The companies are

making tactical and strategic shifts to deal with the changed

scenario. As growth slows in overseas markets, companies are

likely to proceed with caution on acquisitions and refocus on

organic growth that is mainly India-driven.

Indian Automobile Industry

The automobile industry consists of passenger cars,multi-utility

vehicles,commercial vehicles,two wheelers and three

wheelers.After liberalization in 1991, there is a progressive

growth in the number of manufacturers, thus replacing the

earlier monopoly of a few manufacturers.At present, there are 15

manufacturers of passenger cars and multi-utility vehicles, 9

manufacturers of commercial vehicles,14 manufacturers of

two/three wheelers.The Indian automobile industry has come a

long way since in the first car ran on the streets of Bombay (now

Mumbai) in 1898. The initial years of the industry were

characterized by unfavorable government policies. The real big

change as we see in the industry today, started to take place with

the liberalization policies that the government initiated in the

1991. The liberalization policies had a salutary impact on the

Indian economy and the automobile industry in particular. The

automobile industry in the country is one of the key sectors of

the economy in terms of the employment opportunities. The

industry directly employs close to around 0.2 million people and

indirectly employs around 10 million people. The prospects of the

industry also has a bearing on the auto-component industry

which is also a major sector in the Indian economy directly

employing 0.25 million people. The Indian automotive component

industry is dominated by around 500 players which account for

more than 85% of the production. The turnover of this industry

has been growing at a mammoth 28.05% per annum from 2002-

03 onwards. Global as well as local forces have affected the

Indian auto industry, leading to a rapid transformation over the

last decade or so. After the end of licensing era in early 1990s,

the industry has witnessed rapid growth in volumes and capacity.

100% Foreign Direct Investment, absence of much government

regulations, manufacturing and imports free from licensing &

approvals in the automobile sector coupled with customs tariff

for a u t o components reducing to 12.5% resulted in increased

number of multinationals establishing their bases in India and

with export markets looking up, the Indian automobile industry is

poised for a phenomenal growth. India has made a mark in the

global automobile industry; India is the second largest two-

wheeler market in the world, Fourth largest commercial vehicle

market in the world, Eleventh largest passenger car market in

the world, Fifth-largest bus and truck market in the world (by

volume). Envisaged to be the seventh largest automobile market

by 2016 and world's third largest by 2030 (behind only China

and the US).

ENVIRONMENT AND DEVELOPMENT

ENVIRONMENT

The environment can be defined as one’s surroundings. The

welfare of the community depends on the availability of goods

and the availability of goods depends on the availability of

resources that come from environment.

Economic Growth and Environment

Soon after Independence, the Government of India adopted a

policy of rapid economic development through extensive and

intensive exploitation of natural resources. Unfortunately the

Government has allowed landlords, private contractors, mine

owners and industrialists to encroach upon public lands, and

literally loot and destroy forests, water resources and mineral

wealth. While economic development has enriched a small group

of people-namely, the rich landlords in the villages, the small and

large industrialists, the contractors, the smugglers, the

bureaucrats and the politicians-environmental degradation

which is the direct result of this economic development has led

to tremendous suffering and misery to millions of

tribals,traditional craftmen and fisherfolk.It has been responsible

for the steady growth in the number of landless labourers’

migration to cities.

Poverty

A major issue is the removal of mass poverty. Indian economy

indicates a very high proportion of people below the poverty line.

Poverty is defined on the basis of norms of nutritional

requirements, i.e., 2400 calories per person per day for rural

areas and 2100 calories for the urban areas. According to

Planning Commission estimates in 1999-2000 nearly 260 million

people (26 per cent of the population) were living below poverty

line. Out of this 193 million in rural areas and 67 million in urban

areas. The burden of poverty is very massive. Rapid reduction

and eventually the elimination of poverty is, there fore, the most

important issue of development. The prevalence of ‘mass

poverty’ which is the cause as well as consequence of their low

level of development. Poverty is the result of low economic and

human resource (education and other professional skills) base of

the poor who own a very small portion of the total assets in the

form of land, capital, house property etc. The low resource base

of the poor also inhibits them from giving education and training

to their children. This enables them to earn very low and meager

wages and thus perpetuate poverty. In other words, inequality in

the distribution of assets is the principal cause of unequal

distribution of opportunities on the other.

Environment – Economy Interaction

Resources include human resources, financial resources and

natural resources like land, water, fisheries, minerals, forests,,

marine resources, climate, rainfall and topography. Natural

resources determine the course of development of a country.

While some natural resources such as land, water, fisheries and

forest are renewable others like mineral and mineral oils are

exhaustible and can be used only once. The principal objective of

resource development is to maximize gross domestic output

(GDP) or national production and for this purpose there should

be optimum utilization of resources not only in the short period

but, in a sustained manner, over the long period.

But the exploitation of natural resources should not result in the

disturbance of ecological balace.The unintended side effects of

economic development have to be avoided or controlled They

include mismanagement of natural resources, large scale

deforestation, the unplanned discharge of residues and wastes,

the handling of toxic chemicals, growth of slums etc.

Deforestation is directly responsible for greater frequency and

intensity of floods, soil erosion, heavy dams built at enormous

expense and changes in climate conditions. It has also caused

increased suffering to the landless labourers and marginal and

small farmers who have steadily lost their traditional sources of

fuel wood and fodder for their cattle. Loss of fuel wood, in turn,

has led to the use of cowdung as fuel, resulting in loss of

precious organic manure.

Environmental Issues

1) Deforestation

2) Pollution

3)Ground Depletion

4)Climate Change

Climate is weather conditions of a place or area, conditions of

temperature, rainfall, wind, etc. The saying goes, “climate is

what you expect; weather is what you get.” The word climate

describes the general average pattern of the weather in a place

over a period of years. Climatologists generally consider 30 years

as the time needed to assess the climate of a place. Change is a

fundamental characteristic of the environment. Earth’s climate is

a result of complex interactions between the sun , atmosphere ,

oceans , land and biosphere. Relatively small changes in climate

could have a major effect on our resources like food , energy and

water. The factors that influence global climate are the aamount

of solar energy the earth receives, the condition of the

atmosphere , the shape and rotation of the earth , and the

currents and other processes of the ocean. The scientific

evidence suggest that the earths climate is changing . The

atmosphere is warming and this trend will continue. By the year

2050, scientists predict that the world will be warmer by an

average of between 1.5degree Celsius and 4.5 degree Celsius. A

TASK Group set up by WHO had warned that climate change

may have serious impact on human health.

5)Green House Effect.

A glass house used for raising delicate plants is called “green

house’. A green house has higher temperature inside than

outside though the interior receives less radiation. This is called

green house effect. The factors that contribute to its effects are;

i) glass walls ii) high carbon dioxide content iii) high water

vapour content of air in the green house. They let the short wave

radiations pass through them but prevent passage of long wave

radiation emitted by the earth’s surface. This makes inside of the

green house warmer than outside. As the suns radiation enters

the atmosphere, some of it is reflected by the clouds and other

particles and the rest reaches the earth. Part of the radiation

reaching the earth is reflected by the earth’s surface while the

rest is absorbed. During this process these gases in the

atmosphere called green house gases obstruct the shape of heat

from the earth into space while allowing radiation from the sun

to the earth. Without green house effect it is not possible to

sustain life on the plant as the average temperature of the earth

would be 18 degree celsius than 15degree Celsius.

The atmospheric gases which are permeable to short

wave solar radiation but are strong absorber of long wave

relations emitted from the surface of earth are called green

house gases. They include

i) Carbon dioxide

ii)Methane

iii)Nitrous Oxide

iv) Chlorofluro Carbons

v)Hydrofluro carbon gases

vi)Perfluro carbons

vii)Sulphur hexafluoride

viii) Ozone

ix) Carbon monoxide

The green house gases added to the atmosphere by human

activities can significantly affect the amount of heat trapped in

the atmosphere over time and leads for global warming which

had adverse effect on human life. The Inter –Governmental Panel

on Climate Change (IPCC) periodically makes an assessment of

the atmospheric abundance of green house gases and its possible

impact on climate and related issues.

6)Global Warming

Global warming is an increase in the earth’s temperature due to

the use of fossil fuels and other industrial professes leading to a

build up of green house gases in the atmosphere. Air pollution

traps more heat in the atmosphere rendering the earth warmer.

This effect is called global warming.

Causes of Global Warming

The main cause of global warming is green house effect. These

include carbon dioxide, methane, nitrous oxide , clorofluro

carbons and ozone. Human activities during the last few decades

of industrialization and population growth have polluted the

atmosphere that it has begun to effect the climate. By burning

large amount of fossil fuels we release huge quanities of carbon

dioxide into the atmosphere. Currently, deforestation also

releases carbon trapped in the tissues of the trees. Natural

process like volcanic eruptions and earth quake induced fires

also contribute to carbon dioxide emissions. The Inter –

governmental Panel on Climate Change held earlier in 2007

found that man made additions to the global atmospheric carbon

dioxide were indeed responsible for warming .

Effects of Global Warming

i) Climate Effects

a) There will be a warming of the earth’s

surface and lower atmosphere and a cooling of atmosphere.

b) The warming trend over the earths surface is

varied , warming in the tropics is lesser than the global mean

by about 2-3 degree celcius depending on seasonal

changeswhich in other latitude the average warming might

amount for 5-10 degree Celsius increase in temperature.

C) precipitation patterns will be changed. Some

areas will become wetter and some areas dryer.

d)Seasonal patterns will change due to the

changing of temperature and prcepitation matters.

e) Soil moisture regions will be changed due to

the changes in evaporation and precipitation.

f) With the increase in cloud cover over Eurasia in

summer, which will enhance the solar heating of the surface

and increase the land-sea temperature contrast,tropical

mansoon will be driven with more severity and intensity.

g) Wind direction and wind stress over the sea surface

will be changed,which will alter ocean cirrents and cause

changes in nutrient mixing zones and productivity of the

oceans.

7)Rise in Sea Level

The global warming also contributes to rise in sea level due to

thermal expansion of ocean and melting of glaciers and

Greenland ice sheets.The level of sea has been rising by 1 to 2

mm per year during the 20th century.A rise of even half a

metre in sea level would affect human population,one- third of

which lives within 60 km of a coast line.Many important birds

and fishes inhabiting in coastal salt marshes and estuaries will

become extinct die to inundation of their breeding ground.

The direct effects of rise in sea level are:

1) recession of shorelines and wetlands,

2) increased tidal range and estuarine salt-front instruction,

and

3) an increase in salt-water contamination of coastal fresh-

water aquifers.

Thus a rise in sea level will have a negative impact on human

settlements, tourism, fisheries, agriculture, water suppliers and

coastal ecosystems.

Impacts on Forests

Forests are highly sensitive to climate change and upto one third

of currently forested and conservation of forest inhabitats in a

rapidly warming world will present us with new challenges.

Effects on range of species distribution

Each plant and animal species occurs within a specific range of

temperature.The global warming will shift the temperature

range,which would affect attitudinal and latitudinal distribution

pattern of organisms. Rapid rise in temperature may cause large

scale death of many trees, as they are sensitive to temperature

stress and many species may disappear.

Effects on human settlements and society

Population would be displaced by the inundation of low-lying

coastal plains,deltas, and islands in the next century if efforts to

reduce greenhouse gas accumulation in the atmosphere were

unsuccessful.

Effects on Food Production

Global warming will reduce crop production due to increased

incidence of plant disease and pests, explosive growth of weeds

and enhanced bastal rate of respiration of plants. Global

warming could produce colder temperature in Russia and

northern Europe resulting in the reduction of crop yields.

Effects on health

As the earth becomes warmer, the floods and droughts become

more frequent, increase in water-borne diseases,infectious

disease carried by mosquitoes and other disease

vectors.Temperature change may have an impact on several

major categories of diseases including cardiovascular,

cerebrovascular, and respiratory disease.

Solutions for global Warming

The following are some of the suggested solutions to prevent

global warming

a) Reduction in the use of fossil fuels.

b) Shifting to renewable energy resources that do not emit

GHGs.

c) Development of substitutes for chlorofluorocarbons.

d) Increase of the vegetation cover, particularly forest for

photosynthetic utilization of CO2.

e) Limiting population

f) Exploring other options to sequester carbon.

g) Adopting practices and technologies to make agriculture

sustainable.

h) Reduce deforestation, adopt better forest management

practices and undertake afforestation to sequester carbons.

i) Reduce deforestation, adopt better forest management

practices and undertake afforestation to sequester carbons.

j) Use fewer automobiles and public transportation immediate

and drastic reduction of emissions.

SUSTAINABLE DEVELOPMENT

Development should be perceived as a multi-dimensional process

involving the re-organization and re-orientation of entire

economic and social systems. Development is a continuous

process which has to be extended over a long period to lead a

country to a stage of self-sustained growth or to a self-generating

economy. It is an evolutionary product of the idea progress.

Progress can be achieved by generating wealth through

maximization of productivity of labour and capital.

Friedman defined growth as an expansion of the

systems in one or more dimensions without change in the

structure and development as also as an innovative process

leading to the structural transformation of social systems. For

eg; growth can be compared with change in body whereas

development can be compared with the change in body and mind

together. Growth refers to quantitative improvement in the scale

of physical dimension while development signifies improvement

in both physical and non-physical dimension.

Development is the conservation and management of

the natural resources base and the orientation of technological

and institutional change in such a manner so as to assure this

attachment and continued satisfaction of human needs of present

and future generations. Such sustainable development in

agriculture, forestry and fisheries section conservation of land ,

water, plant and animal genetic resources , technically

appropriate , economically viable and socially acceptable.

SUSTAINABILITY

The term sustainable development refers to

keeping an effort going continuously or the ability to last out and

keep from falling. Sustainability implies that human use of

enjoyment of the worlds natural and cultural resources should

not in, in overall terms , diminish or destroy them. Thus

sustainability is the ability of an activity or development to

continue in the long term without undermining that part of

environment which sustains it.

SUSTAINABLE DEVELOPMENT

The term sustainable development comes into common usage

after the use by the World commission on Environment and

Development (WCED) headed by Dr. Geo Halem Brundland.

Sustainable Development.Sustainble development is now

widely accepted as a primary goal economic and social

activity. Sustainble development suggest that the primary

focus of environmental protection efforts on the international

level should be to improve the human condition. It also implies

the integration of environmental and social concerns into all

aspects of economic policy. Principle 4 of the Rio Declaration

states that inorder to attain the sustainable development ,

environmental protection shall constitute an integral part of

the development process and cannot be considered in isolation

from it.Injecting sustainability concept in developmental

policies has broad implication for macro and micro

economics.Regarding macro economic policies , the move

towards sustainable development requires for example

traditional national accounting system be changed to better

measure over all qualities of life.

Intergenerational Equity and Responsibility.

Sustainable development as defined in our common feature is

closely associated with the goal of intergenerational equity.

Sustainable development recognizes each generation’s

responsibility to be fair to the next generation by leaving an

inheritance of wealth no less than they themselves have

inherited.At a minimum, meeting this goal may require

emphasizing the sustainale use of natural resource for

subsequent generation and avoiding any environmental damage.

Common but differentiated Responsibilities.

Sustainable development was common challenge to all countries

but because of the different development path, industrialized

countries may be asked to carry more of the immediate burden.

The developed countries explicitly acknowledged the for the

central responsibility for the present environmental degradation

and its remediation. To accomplish sustainable development, a

number of areas have to be organized such as,

1) Improving energy efficiency

2) Saving forests,

3) Safeguarding biodiversity,

4) Adopting water resource management,

5) Managing coastal zones and oceans fisheries.

6) Arresting pollution,

7) Planning cities better,

8) Accomplishing a second green revolution,

9) Stabilizing world population, and

10) Stopping environmentally destructive subsidies.

Guidelines for Sustainable Development

The following guidelines are suggested for achieving

sustainable development:

1) Reduce the input of matter and energy resource in

production process to prevent excessive depletion and

degradation of planetary resources.

2) Use energy more efficiently and economically

3) Shift from exhaustible and potentially polluting fossil and

nuclear fuels to less harmful renewable wind energy or

solar energy.

4) Avoid wasting non-renewable and use them no faster than

the rate at which a renewable resource used sustainably

can be sustained.

5) Recycle and use the matter discarded as waste.

6) Use locally adaptable, ecofriendly and resource efficient

technology, which will use less of resources and produce

minimum wastes.

7) Utilise resources as per carrying capacity of the

environment.

8) Adoption of 3-R approach, ie., reduce,reuse,recycle

approach to minimize scarce resource use.

9) Emphasise pollution prevention and waste reduction instead

of pollution clean-up and waste management.

10) Study before the construction of dams, major highways,

mining, industry etc whether they can seriously damage

ecosystems and bio-diversity before they are begun.

11) Insist and implement the technique of pollution control of

toxic and hazardous gases in existing industries.

Global Environmental Concerns

1) Population explosion enhances the ecological demands

which resulting degradation on natural resouces.

2) Almost half of the world’s original expanse of tropical

forests has been cleared.Within the next 30 to 50 years

there may be little of these forests left.

3) Millions of hectares of grass lands have been overgrazed,

some especially in Africa and the Middle East,have been

converted to desert.

4) Between 25 % and 50 % of the world’s wet lands have been

drained, built upon, or seriously polluted.

5) An estimated 36,500 species of plants and animals become

extinct each year, mostly because of human activities.

6) About 8.1 million square kilometers of once-productive land

(crop land, forests, grasslands) have become desert in the

last 50 years. Each year almost 61,000 square kilometers of

new desert are formed.

7) Top soil is eroding faster than it forms on about 35 per cent

of the world’s crop land. Crop productivity on one-third of

the earth’s irrigated crop land has been reduced by salt

build up in top soil.

8) Most of the wastes we dump into the air, water, and land

eventually end up in the oceans. Oil slicks, floating plastic

debris, polluted estuaries and beaches, and contaminated

fish and shellfish are visible signs that we are using the

oceans as the world’s largest trash dump.

9) In developing countries 61 per cent of the people living in

rural areas and 26 per cent of urban dwellers do not have

access to safe drinking water. Each year 5 million people

die from preventable water diseases.

10) Water is withdrawn from underground reservoirs

(aquifers) faster than it is replenished by precipitation.

11) In the world’s population more than one out of every

four live in absolute poverty.

12) It is estimated that 70 per cent of the surface water

resources are polluted and that in large stretches of major

rivers, water is not even fit for bathing, leave alone

drinking.

13) Environmental pollution although typically associated

with industrialization, is a great and growing concern in

developing countries.

14) Use of fertilizers and pesticides pollute the

environment.

15) Over the past few years air pollution has been

increasing as a regional or global problem, not a local one.

Acid rain may fall to earth thousands of miles away from the

places of emission of sulphur dioxide world and nitrogen

oxide.Thus the clouds generated in the developed world

may rain in the territory of the developing world.

16) Emissions of carbon dioxide and other gases into the

atmosphere from fossil fuel burning and other human

activities may raise the average temperature of the earth’s

lower atmosphere several degrees by 2050.This would

disrupt food production and flood low-lying coastal cities

and croplands.

17) Chlorofluorocarbons and halons released into the

lower atmosphere are drifting into the upper atmosphere

and reacting with and gradually depleting ozone faster than

it is being formed.

18) Atmospheric levels of heat-trapping carbons dioxide

are now 26 per cent higher than the pre-industrial

concentration and continue to rise higher and higher with

‘green house effect’.